Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - RTI INTERNATIONAL METALS INCFinancial_Report.xls
EX-31.1 - EX-31.1 - RTI INTERNATIONAL METALS INCd744375dex311.htm
EX-32.1 - EX-32.1 - RTI INTERNATIONAL METALS INCd744375dex321.htm
EX-10.1 - EX-10.1 - RTI INTERNATIONAL METALS INCd744375dex101.htm
EX-32.2 - EX-32.2 - RTI INTERNATIONAL METALS INCd744375dex322.htm
EX-31.2 - EX-31.2 - RTI INTERNATIONAL METALS INCd744375dex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to             

Commission File Number: 001-14437

RTI INTERNATIONAL METALS, INC.

(Exact name of registrant as specified in its charter)

 

Ohio   52-2115953

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Westpointe Corporate Center One, 5th Floor

1550 Coraopolis Heights Road

Pittsburgh, Pennsylvania

  15108-2973
(Address of principal executive offices)   (Zip Code)

(412) 893-0026

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    x     Accelerated filer   ¨
Non-accelerated filer    ¨   (Do not check if a smaller company)   Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Number of shares of the Corporation’s common stock (“Common Stock”) outstanding as of August 1, 2014 was 30,714,985.

 

 

 


Table of Contents

RTI INTERNATIONAL METALS, INC. AND CONSOLIDATED SUBSIDIARIES

As used in this Quarterly Report on Form 10-Q, the terms “RTI,” “Company,” “Registrant,” “we,” “our,” and “us,” mean RTI International Metals, Inc., its predecessors, and consolidated subsidiaries, taken as a whole, unless the context indicates otherwise.

 

 

INDEX

 

     Page  
     PART I—FINANCIAL INFORMATION       
Item 1.    Financial Statements      1   
  

Condensed Consolidated Statements of Operations (Unaudited) for the Six Months Ended June 30, 2014 and 2013 (Restated)

     1   
  

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Six Months Ended June 30, 2014 and 2013 (Restated)

     2   
  

Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2014 and December 31, 2013

     3   
  

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2014 and 2013 (Restated)

     4   
  

Notes to Condensed Consolidated Financial Statements (Unaudited)

     5   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      37   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      47   
Item 4.    Controls and Procedures      47   
   PART II—OTHER INFORMATION   
Item 1    Legal Proceedings      50   
Item 1A.    Risk Factors      50   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      50   
Item 4.    Mine Safety Disclosures      51   
Item 6.    Exhibits      51   

Signatures

     52   

Index to Exhibits

     53   


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013
(As Restated)
    2014     2013
(As Restated)
 

Net sales

   $ 205,334      $ 199,123      $ 379,879      $ 388,325   

Cost and expenses:

        

Cost of sales

     163,022        155,346        309,098        305,295   

Selling, general, and administrative expenses

     23,631        22,314        49,499        46,919   

Research, technical, and product development expenses

     1,209        982        2,193        1,983   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     17,472        20,481        19,089        34,128   

Other income (expense), net

     (375     700        160        1,259   

Interest income

     95        50        145        81   

Interest expense

     (7,724     (20,693     (15,331     (25,489
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,468        538        4,063        9,979   

Provision for (benefit from) income taxes

     2,357        (521     768        3,952   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

   $ 7,111      $ 1,059      $ 3,295      $ 6,027   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to discontinued operations, net of tax

     (70     (389     (435     (472
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 7,041      $ 670      $ 2,860      $ 5,555   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

        

Basic

   $ 0.23      $ 0.03      $ 0.11      $ 0.20   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.23      $ 0.03      $ 0.11      $ 0.20   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share attributable to discontinued operations:

        

Basic

   $ —        $ (0.01   $ (0.01   $ (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ —        $ (0.01   $ (0.01   $ (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

        

Basic

     30,499,809        30,306,545        30,472,209        30,266,584   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     30,575,712        30,432,874        30,579,672        30,479,476   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

1


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share amounts)

 

     Three Months Ended
June 30
    Six Months Ended
June 30,
 
     2014      2013
(As Restated)
    2014     2013
(As Restated)
 

Net income

   $ 7,041       $ 670      $ 2,860      $ 5,555   

Other comprehensive income (loss):

         

Foreign currency translation

     4,002         (3,285     (91     (5,494

Unrealized gain (loss) on investments,net of tax of $10, $(12), $(4) and $(12)

     18         (21     (8     (21

Benefit plan amortization, net of tax of $677, $767, $1,354 and $4,942

     1,105         1,250        2,210        8,074   
  

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     5,125         (2,056     2,111        2,559   
  

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 12,166       $ (1,386   $ 4,971      $ 8,114   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

2


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

    June 30,
2014
    December 31,
2013
 

ASSETS

   

Current assets:

   

Cash and cash equivalents

  $ 148,953      $ 343,637   

Short-term investments

    143,602        —     

Receivables, less allowance for doubtful accounts of $1,063 and $820

    109,328        105,271   

Inventories, net

    450,451        430,088   

Costs in excess of billings

    7,331        5,377   

Deferred income taxes

    32,211        32,032   

Assets of discontinued operations

    806        5,274   

Other current assets

    20,629        16,947   
 

 

 

   

 

 

 

Total current assets

    913,311        938,626   

Property, plant, and equipment, net

    373,976        372,340   

Goodwill

    144,572        117,578   

Other intangible assets, net

    61,264        53,754   

Other noncurrent assets

    22,386        23,247   
 

 

 

   

 

 

 

Total assets

  $ 1,515,509      $ 1,505,545   
 

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities:

   

Accounts payable

  $ 80,423      $ 79,039   

Accrued wages and other employee costs

    27,273        29,787   

Unearned revenues

    10,944        15,625   

Liabilities of discontinued operations

    —          458   

Other accrued liabilities

    21,423        22,574   
 

 

 

   

 

 

 

Total current liabilities

    140,063        147,483   

Long-term debt

    442,406        430,300   

Liability for post-retirement benefits

    43,931        43,447   

Liability for pension benefits

    13,121        13,787   

Deferred income taxes

    76,304        74,078   

Unearned revenues

    5,435        10,470   

Other noncurrent liabilities

    12,966        12,006   
 

 

 

   

 

 

 

Total liabilities

    734,226        731,571   
 

 

 

   

 

 

 

Commitments and contingencies (Note 16)

   

Shareholders’ equity:

   

Common stock, $0.01 par value; 100,000,000 and 50,000,000 shares authorized; 31,558,149 and 31,399,661 shares issued; 30,708,631 and 30,593,251 shares outstanding

    316        314   

Additional paid-in capital

    535,436        532,249   

Treasury stock, at cost; 849,518 and 806,410 shares

    (19,649     (18,798

Accumulated other comprehensive loss

    (38,286     (40,397

Retained earnings

    303,466        300,606   
 

 

 

   

 

 

 

Total shareholders’ equity

    781,283        773,974   
 

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 1,515,509      $ 1,505,545   
 

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

3


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

     Six months ended
June 30,
 
     2014     2013
(As Restated)
 

OPERATING ACTIVITIES:

    

Net income

   $ 2,860      $ 5,555   

Adjustment for non-cash items included in net income:

    

Depreciation and amortization

     22,203        21,753   

Goodwill impairment

     —          484   

Deferred income taxes

     —          3,539   

Stock-based compensation

     2,745        3,126   

Excess tax benefits from stock-based compensation activity

     (197     (376

Amortization of discount on long-term debt

     8,915        6,569   

Amortization of debt issuance costs

     928        753   

Deferred financing cost writedown

     —          1,498   

Other

     (33     (102

Changes in assets and liabilities:

    

Receivables

     (1,941     (3,054

Inventories

     (16,944     (34,555

Accounts payable

     (1,102     (12,900

Income taxes payable

     (4,187     (8,356

Unearned revenue

     (9,703     23,352   

Cost in excess of billings

     (1,953     1,065   

Other current assets and liabilities

     (4,874     (11,081

Other assets and liabilities

     1,946        3,349   
  

 

 

   

 

 

 

Cash provided by (used in) operating activities

     (1,337     619   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Purchase of investments

     (168,555     (128,291

Acquisitions, net of cash acquired

     (37,217     —     

Capital expenditures

     (13,606     (19,665

Divestitures

     3,281        10,475   

Maturity/sale of investments

     25,000        —     
  

 

 

   

 

 

 

Cash used in investing activities

     (191,097     (137,481
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Proceeds from exercise of employee stock options

     709        1,489   

Excess tax benefits from stock-based compensation activity

     197        376   

Borrowings on long-term debt

     —          402,500   

Repayments on long-term debt

     (1,411     (120,362

Purchase of common stock held in treasury

     (851     (399

Financing fees

     —          (12,370
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (1,356     271,234   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (894     (129
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (194,684     134,243   

Cash and cash equivalents at beginning of period

     343,637        97,190   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 148,953      $ 231,433   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Increase (decrease) in capital expenditures accrued in accounts payable

   $ 1,110      $ (5,595

Capital leases entered into during the period

   $ 4,722      $ —     

Issuance of common stock for restricted stock awards

   $ 2,781      $ 3,378   

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

4


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

Note 1—BASIS OF PRESENTATION:

The accompanying unaudited Condensed Consolidated Financial Statements of RTI International Metals, Inc. and its subsidiaries (the “Company” or “RTI”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and include the financial position and results of operations for the Company. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, these financial statements contain all of the adjustments of a normal and recurring nature considered necessary to state fairly the results for the interim periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for the year.

The Condensed Consolidated Balance Sheet at December 31, 2013 has been derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these Condensed Consolidated Financial Statements be read in conjunction with accounting policies and Notes to the Consolidated Financial Statements included in the Company’s 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2014 (the “Annual Report”).

On April 25, 2014, following shareholder approval at the Company’s Annual Meeting of Shareholders (the “Annual Meeting”), the Company filed a Certificate of Amendment with the Ohio Secretary of State which amended the Company’s Amended and Restated Articles of Incorporation by (1) increasing the number of the Company’s authorized common shares from 50,000,000 to 100,000,000 and (2) deleting the authorized but unissued Series A Junior Participating Preferred Stock.

Note 2—ORGANIZATION:

The Company is a leading producer and global supplier of advanced titanium mill products and a manufacturer of fabricated titanium and specialty metal components for the international aerospace, defense, energy, medical device, and other consumer and industrial markets. It is a successor to entities that have been operating in the titanium industry since 1951. The Company first became publicly traded on the New York Stock Exchange in 1990 under the name RMI Titanium Co. and the symbol “RTI,” and was reorganized into a holding company structure in 1998 under the name RTI International Metals, Inc.

On June 3, 2014, the Company acquired all of the issued and outstanding common stock of Dynamet Technology, Inc. (“Dynamet Technology”), an industry innovator in titanium powder metallurgy and a supplier of near-net shape titanium and titanium alloy preforms and components to commercial aerospace, defense, biomedical, and industrial customers.

On January 22, 2014, the Company acquired all of the issued and outstanding common stock of Directed Manufacturing, Inc. (“RTI Directed Manufacturing”), a leader in additively manufacturing metals and plastics, using 3-D printing technology, for commercial production and engineering development applications.

Details of the acquisitions of Dynamet Technology and RTI Directed Manufacturing, as well as the acquisition of RTI Extrusions Europe in October 2013, are presented in Note 4 to these Condensed Consolidated Financial Statements.

 

5


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The Company completed the sale of the specialty metals business of Bow Steel Corporation (“RTI Connecticut”) on February 21, 2014, for approximately $3.3 million in cash. The results of RTI Connecticut have been presented as discontinued operations for the three and six months ended June 30, 2014. The results of Pierce-Spafford Metals Company, Inc. (“RTI Pierce Spafford”), which was sold in 2013, are reported along with results of RTI Connecticut as discontinued operations for the three and six months ended June 30, 2013. Refer to Note 5 to these Condensed Consolidated Financial Statements for further details surrounding the discontinued operations of the Company.

The Company conducts business in two segments: the Titanium Segment and the Engineered Products and Services (“EP&S”) Segment. The structure reflects the Company’s presence as an integrated supplier of advanced titanium mill products as well as engineered and fabricated components across the entire supply chain.

The Titanium Segment melts, processes, produces, stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. With operations in Niles and Canton, Ohio; Martinsville, Virginia; Norwalk, California; Burlington, Massachusetts; Tamworth, England; and Rosny-Sur-Seine, France, the Titanium Segment has overall responsibility for the production and distribution of primary mill products including, but not limited to bloom, billet, sheet, and plate. In addition, the Titanium Segment produces ferro titanium alloys for its steelmaking customers. The Titanium Segment also focuses on the research and development of evolving technologies relating to raw materials, melting, and other production processes, and the application of titanium in new markets.

The EP&S Segment is comprised of companies with significant hard and soft-metal expertise that form, extrude, fabricate, additively manufacture, machine, micro machine, and assemble titanium, aluminum, and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve the commercial aerospace, defense, medical device, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. With operations located in Minneapolis, Minnesota; Houston and Austin, Texas; Sullivan and Washington, Missouri; Laval, Canada; and Welwyn Garden City and Bradford, England, the EP&S Segment provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and subassemblies, and components for the production of minimally invasive and implantable medical devices, as well as engineered systems for deepwater oil and gas exploration and production infrastructure. The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products.

Note 3—RESTATEMENTS AND REVISIONS:

As disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013, the Company revised its Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 for computational errors in the calculation of revenues and cost of sales on contracts requiring the application of the percentage-of-completion revenue recognition methodology under ASC 605-35 and opening balance sheet corrections related to deferred taxes and goodwill associated with its acquisition of RTI Remmele Engineering. In the Annual Report, the Company subsequently restated its Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 to establish a full valuation allowance against its Canadian net deferred tax asset, and to correct the related provision for income taxes. The following tables set forth the impact of the revision and restatements, as well as adjustments for the presentation of RTI Connecticut as a discontinued operation, on the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows as filed in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013 as filed with the SEC on September 24, 2013.

 

6


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

 

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

    Three Months Ended June 30, 2013  
    Previously
Reported (1)
    Revision
Adjustment (2)
    As
Revised
    Restatement
Adjustment
    As
Corrected
    Discontinued
Operations
    Currently
Reported
 

Net sales

  $ 200,950      $ (206   $ 200,744      $ —        $ 200,744      $ (1,621   $ 199,123   

Cost and expenses:

             

Cost of sales

    156,782        15        156,797        —          156,797        (1,451     155,346   

Selling, general, and administrative expenses

    22,641        —          22,641        —          22,641        (327     22,314   

Research, technical, and product development expenses

    982        —          982        —          982        —          982   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    20,545        (221     20,324        —          20,324        157        20,481   

Other income, net

    700        —          700        —          700        —          700   

Interest income

    50        —          50        —          50        —          50   

Interest expense

    (20,693     —          (20,693     —          (20,693     —          (20,693
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    602        (221     381        —          381        157        538   

Benefit from income taxes

    (878     (89     (967     371        (596     75        (521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

    1,480        (132     1,348        (371     977        82        1,059   

Net income (loss) attributable to discontinued operations, net of tax

    (307     —          (307     —          (307     (82     (389
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 1,173      $ (132   $ 1,041      $ (371   $ 670      $ —        $ 670   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

             

Basic

  $ 0.05      $ —        $ 0.04      $ (0.01   $ 0.03      $ —        $ 0.03   

Diluted

  $ 0.05      $ —        $ 0.04      $ (0.01   $ 0.03      $ —        $ 0.03   

Loss per share attributable to discontinued operations:

             

Basic

  $ (0.01   $ —        $ (0.01   $ —        $ (0.01   $ —        $ (0.01

Diluted

  $ (0.01   $ —        $ (0.01   $ —        $ (0.01   $ —        $ (0.01

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidated Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as filed with the SEC on September 24, 2013.
(2): Amounts presented as Revision Adjustment represent revisions for revenue recognition errors related to certain long-term projects as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

7


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

    Six Months Ended June 30, 2013  
    Previously
Reported (1)
    Revision
Adjustment (2)
    As Revised     Restatement
Adjustment
    As
Corrected
    Discontinued
Operations
    Currently
Reported
 

Net sales

  $ 392,850      $ (868   $ 391,982      $ —        $ 391,982      $ (3,657   $ 388,325   

Cost and expenses:

             

Cost of sales

    308,768        (11     308,757        —          308,757        (3,462     305,295   

Selling, general, and administrative expenses

    47,549        —          47,549        —          47,549        (630     46,919   

Research, technical, and product development expenses

    1,983        —          1,983        —          1,983        —          1,983   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    34,550        (857     33,693        —          33,693        435        34,128   

Other income, net

    1,259        —          1,259        —          1,259        —          1,259   

Interest income

    81        —          81        —          81        —          81   

Interest expense

    (25,489     —          (25,489     —          (25,489     —          (25,489
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    10,401        (857     9,544        —          9,544        435        9,979   

Provision for income taxes

    2,104        (267     1,837        1,996        3,833        119        3,952   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

    8,297        (590     7,707        (1,996     5,711        316        6,027   

Net income (loss) attributable to discontinued operations, net of tax

    (156     —          (156     —          (156     (316     (472
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 8,141      $ (590   $ 7,551      $ (1,996   $ 5,555      $ —        $ 5,555   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

             

Basic

  $ 0.27      $ (0.02   $ 0.25      $ (0.07   $ 0.19      $ 0.01      $ 0.20   

Diluted

  $ 0.27      $ (0.02   $ 0.25      $ (0.07   $ 0.19      $ 0.01      $ 0.20   

Loss per share attributable to discontinued operations:

             

Basic

  $ (0.01   $ —        $ (0.01   $ —        $ (0.01   $ (0.01   $ (0.02

Diluted

  $ (0.01   $ —        $ (0.01   $ —        $ (0.01   $ (0.01   $ (0.02

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidated Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as filed with the SEC on September 24, 2013.
(2): Amounts presented as Revision Adjustment represent revisions for revenue recognition errors related to certain long-term projects as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

8


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

     June 30, 2013  
     Previously
Reported (1)
    Revision
Adjustment (2)
    Restatement
Adjustment
    Currently
Reported
 

OPERATING ACTIVITIES:

        

Net income

   $ 8,141      $ (590   $ (1,996   $ 5,555   

Adjustment for non-cash items included in net income:

        

Depreciation and amortization

     21,753        —          —          21,753   

Goodwill impairments

     484        —          —          484   

Deferred income taxes

     1,810        (267     1,996        3,539   

Stock-based compensation

     3,126        —          —          3,126   

Excess tax benefits from stock-based compensation activity

     (376     —          —          (376

Amortization of discount on long-term debt

     6,569        —          —          6,569   

Amortization of deferred financing costs

     753        —          —          753   

Deferred financing cost writedown

     1,498        —          —          1,498   

Other

     (102     —          —          (102

Changes in assets and liabilities:

        

Receivables

     (3,054     —          —          (3,054

Inventories

     (34,979     424        —          (34,555

Accounts payable

     (12,900     —          —          (12,900

Income taxes payable

     (8,356     —          —          (8,356

Unearned revenue

     22,033        1,319        —          23,352   

Cost in excess of billings

     1,951        (886     —          1,065   

Other current assets and liabilities

     (11,185     —          104        (11,081

Other assets and liabilities

     3,453        —          (104     3,349   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) operating activities

     619        —          —          619   

INVESTING ACTIVITIES:

        

Divestitures

     10,475        —          —          10,475   

Capital expenditures

     (19,665     —          —          (19,665

Purchase of investments

     (128,291     —          —          (128,291
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

     (137,481     —          —          (137,481

FINANCING ACTIVITIES:

        

Proceeds from exercise of employee stock options

     1,489        —          —          1,489   

Excess tax benefits from stock-based compensation activity

     376        —          —          376   

Purchase of common stock held in treasury

     (399     —          —          (399

Borrowings on long-term debt

     402,500        —          —          402,500   

Repayments on long-term debt

     (120,362     —          —          (120,362

Financing fees

     (12,370     —          —          (12,370
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

     271,234        —          —          271,234   

Effect of exchange rate changes on cash and cash equivalents

     (129     —          —          (129
  

 

 

   

 

 

   

 

 

   

 

 

 

Decrease in cash and cash equivalents

     134,243        —          —          134,243   

Cash and cash equivalents at beginning of period

     97,190        —          —          97,190   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 231,433      $ —        $ —        $ 231,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidated Statement of Cash Flows in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as filed with the SEC on September 24, 2013. The previously reported changes in inventory, cost in excess of billings, and deferred revenue have been adjusted by $(340), $1,021, and $(681) to correct the prior presentation.
(2): Amounts presented as Revision Adjustment represent revisions related to revenue recognition errors related to certain long-term projects, as well as adjustments to goodwill and deferred taxes related to the acquisition of Remmele in 2012, as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

9


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 4—ACQUISITIONS:

Dynamet Technology. On June 3, 2014, the Company purchased all of the outstanding common stock of Dynamet Technology for total consideration of approximately $19.2 million, including $15.5 million in cash, $1.6 million in contingent consideration, and the assumption of $2.1 million in liabilities. Dynamet Technology is an industry innovator in titanium powder metallurgy and a supplier of near-net shape titanium and titanium alloy preforms and components to commercial aerospace, defense, biomedical and industrial customers. Subsequent to its acquisition, Dynamet Technology was merged into the Company’s RTI Niles subsidiary, which is part of the Titanium Segment. From the acquisition date through June 30, 2014, Dynamet Technology generated revenues of $0.1 million and an operating loss of $(0.1) million.

The preliminary purchase price allocation, which has not been finalized, is as follows:

 

Assets purchased:

  

Current assets, excluding inventory

   $ 392   

Inventories

     174   

Plant and equipment

     101   

Intangible assets:

  

Customer relationships

     3,500   

Developed technology

     1,000   

Backlog

     100   

Goodwill

     13,954   

Liabilities assumed:

  

Current liabilities

     (389

Deferred tax liabilities

     (1,724

Contingent consideration

     (1,600
  

 

 

 

Net assets acquired

   $ 15,508   
  

 

 

 

Goodwill is primarily attributable to the Company’s exposure to new materials and production methods, which could enhance the Company’s existing product offerings, and is not deductible for income tax purposes. Customer relationships and developed technology intangible assets are being amortized over a seven-year useful life, while the backlog intangible asset is being amortized over a one-year useful life. The entire purchase price allocation remained open at June 30, 2014.

Pro forma financial information has not been prepared for the acquisition of Dynamet Technology as the acquisition was not material to the Condensed Consolidated Financial Statements.

RTI Directed Manufacturing. On January 22, 2014, the Company purchased all of the outstanding common stock of RTI Directed Manufacturing for total consideration of approximately $22.3 million, including $21.7 million in cash and the assumption of $0.6 million in liabilities. RTI Directed Manufacturing additively manufactures products using 3-D printing technology for a variety of markets. The results of RTI Directed Manufacturing are reported in the EP&S Segment. From the acquisition date through June 30, 2014, RTI Directed Manufacturing generated revenues of $1,352 and an operating loss of $(642).

 

10


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The preliminary purchase price allocation, which has not been finalized, is as follows:

 

Assets purchased:

  

Current assets, excluding inventory

   $ 746   

Inventories

     663   

Plant and equipment

     2,589   

Intangible assets:

  

Customer relationships

     3,000   

Directed Manufacturing trade name

     1,000   

Developed technology

     1,300   

Goodwill

     12,982   

Liabilities assumed:

  

Current liabilities

     (571
  

 

 

 

Net assets acquired

   $ 21,709   
  

 

 

 

Goodwill is primarily attributable to RTI Directed Manufacturing’s assembled workforce and exposure to new customers for the Company’s products, and without the Federal tax election noted below is not deductible for income tax purposes. Customer relationships and developed technology are being amortized over a seven-year useful life. Trade names are not amortized as the Company believes that these assets have an indefinite life and the Company intends to continue the use of the Directed Manufacturing name indefinitely. The Company previously disclosed that it was evaluating the appropriateness of a 338(h)(10) election under the Internal Revenue Code (the “I.R.C.”), which would allow the Company to step-up the tax basis of acquired assets to fair value as presented in the purchase price allocation. The Company has since determined that the election is appropriate, and as a result a significant portion of the purchase price will be deductible for U.S. tax purposes under the provisions of I.R.C Section 197. The entire purchase price allocation remained open at June 30, 2014.

Pro forma financial information has not been prepared for the acquisition of Directed Manufacturing as the acquisition was not material to the Condensed Consolidated Financial Statements.

RTI Extrusions Europe Limited. On October 1, 2013, the Company purchased all of the outstanding common stock of RTI Extrusions Europe for total consideration of approximately $20.4 million, including $16.2 million in cash, and the assumption of $4.2 million in liabilities. RTI Extrusions Europe manufactures extruded, hot-or-cold stretched steel and titanium parts for a number of markets including the aerospace and oil and gas markets. The results of RTI Extrusions Europe are reported in the EP&S Segment.

The purchase price allocation, which has been finalized, is as follows:

 

Assets purchased:

  

Current assets, excluding inventory

   $ 4,827   

Inventories

     5,230   

Plant and equipment

     4,346   

Intangible assets:

  

Customer relationships

     3,600   

Backlog

     100   

Goodwill

     2,285   

Liabilities assumed:

  

Current liabilities

     (2,621

Deferred tax liabilities

     (1,553
  

 

 

 

Net assets acquired

   $ 16,214   
  

 

 

 

 

11


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The customer relationship intangible asset is being amortized over a seven-year useful life, while the fully-amortized backlog was amortized over a six-month useful life. Goodwill is primarily attributable to the assembled workforce of RTI Extrusions Europe. Goodwill is not deductible for tax purposes.

Note 5—DISCONTINUED OPERATIONS:

As previously disclosed, in conjunction with the reorganization of its reportable segments in 2013, the Company evaluated its long-term growth strategy and determined it would sell or seek other strategic alternatives for its non-core service centers, RTI Connecticut and RTI Pierce Spafford. In February 2014, the Company completed the sale of the assets of RTI Connecticut for approximately $3.3 million in cash. In April 2013, the Company completed the sale of RTI Pierce Spafford for approximately $12.4 million in cash, of which $10.5 million has been received as of June 30, 2014 with the remainder expected to be received later in 2014.

The results of RTI Connecticut, including all fair value adjustments and losses on the completed sale, have been presented as results from discontinued operations for the three and six months ended June 30, 2014 on the Company’s Condensed Consolidated Statements of Operations, while the results of both RTI Connecticut and RTI Pierce Spafford are presented as results of discontinued operations for the three and six months ended June 30, 2013. The assets and liabilities of RTI Connecticut have been classified on the Company’s Condensed Consolidated Balance Sheets as assets and liabilities of discontinued operations.

The Company’s results from discontinued operations are summarized below:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2014             2013             2014             2013      

Net sales

   $ 222      $ 3,836      $ 804      $ 12,529   

Loss before income taxes

     (79     (601     (574     (635

Benefit from income taxes

     (9     (212     (139     (163

Net loss from discontinued operations

     (70     (389     (435     (472

Assets and liabilities of discontinued operations were comprised of the following at June 30, 2014 and December 31, 2013:

 

     June 30,
2014
     December 31,
2013
 

ASSETS

     

Accounts receivable, net

   $ 189       $ 594   

Inventories, net

     617         4,555   

Property, plant and equipment, net

     —           105   

Other current assets

     —           20   
  

 

 

    

 

 

 

Total assets of discontinued operations

   $ 806       $ 5,274   
  

 

 

    

 

 

 

LIABILITIES

     

Accounts payable

   $ —         $ 326   

Accrued wages and other employment costs

     —           96   

Other liabilities

     —           36   
  

 

 

    

 

 

 

Total liabilities of discontinued operations

   $ —         $ 458   
  

 

 

    

 

 

 

 

12


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 6—ACCUMULATED OTHER COMPREHENSIVE LOSS:

The components of accumulated other comprehensive loss at June 30, 2014 and December 31, 2013 were as follows:

 

    Foreign
Currency
Translation
    Actuarial
Losses
on Benefit
Plans
    Unrealized
Losses
on
Investments
    Total  

Balance at December 31, 2013

  $ 5,780      $ (46,177   $ —        $ (40,397

Other comprehensive loss before reclassifications, net of tax

    (91     —          (8     (99

Amounts reclassified from accumulated other comprehensive loss, net of tax

    —          2,210        —          2,210   
 

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss at June 30, 2014

  $ 5,689      $ (43,967   $ (8   $ (38,286
 

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reclassified from accumulated other comprehensive income to net periodic pension expense during the three and six months ended June 30, 2014 and 2013 were as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Amortization of defined benefit pension items

        

Actuarial losses and prior service costs

   $ 1,782      $ 2,017      $ 3,564      $ 4,446   

Special termination benefits

     —          —          —          2,214   

Tax benefit

     (677     (767     (1,354     (2,529
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications

   $ 1,105      $ 1,250      $ 2,210      $ 4,131   
  

 

 

   

 

 

   

 

 

   

 

 

 

These amounts have been used in the calculation of net periodic benefit cost for the three and six months ended June 30, 2014 and 2013. Refer to Note 15 for further information about the Company’s benefit plans.

Note 7—STOCK-BASED COMPENSATION:

On April 25, 2014, the Company established the 2014 Stock and Incentive Plan (the “2014 Plan”) after receiving approval from its shareholders at the Annual Meeting. The 2014 Plan authorized for issuance 3,500,000 common shares, which includes approximately 711,000 shares that were never issued under the expired RTI International Metals, Inc. 2004 Stock Plan (the “2004 Plan”). Additionally, shares that are currently subject to previously granted awards under the 2004 Plan would become available for awards under the 2014 Plan in the event of forfeiture, expiration or termination of a 2004 Plan award or in the event shares are delivered in payment for or are withheld for taxes in connection with a 2004 Plan award.

 

13


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Stock Options

A summary of the status of the Company’s stock options as of June 30, 2014, and the activity during the six months then ended, is presented below:

 

Stock Options

   Options  

Outstanding at December 31, 2013

     526,736   

Granted

     93,472   

Forfeited

     (18,052

Expired

     (20,953

Exercised

     (27,080
  

 

 

 

Outstanding at June 30, 2014

     554,123   
  

 

 

 

Exercisable at June 30, 2014

     393,061   
  

 

 

 

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model based upon the assumptions noted in the following table:

 

     2014  

Risk-free interest rate

     1.49

Expected dividend yield

     0.00

Expected lives (in years)

     5.0   

Expected volatility

     55.00

The weighted-average grant date fair value of stock option awards granted during the six months ended June 30, 2014 was $15.00.

Restricted Stock

A summary of the status of the Company’s nonvested restricted stock as of June 30, 2014, and the activity during the six months then ended, is presented below:

 

Nonvested Restricted Stock Awards

   Shares  

Nonvested at December 31, 2013

     213,475   

Granted

     93,806   

Vested

     (92,259

Forfeited

     (15,970
  

 

 

 

Nonvested at June 30, 2014

     199,052   
  

 

 

 

The fair value of restricted stock grants was calculated using the market value of the Company’s Common Stock on the date of issuance. The weighted-average grant date fair value of restricted stock awards granted during the six months ended June 30, 2014 was $29.64.

 

14


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Performance Share Awards

A summary of the Company’s performance share awards as of June 30, 2014, and the activity during the six months then ended, is presented below:

 

Performance Share Awards

   Awards
Activity
    Maximum Shares
Eligible to
Receive
 

Outstanding at December 31, 2013

     154,333        308,666   

Granted

     70,875        141,750   

Vested

     (42,442     (84,884

Forfeited

     (19,350     (38,700
  

 

 

   

 

 

 

Outstanding at June 30, 2014

     163,416        326,832   
  

 

 

   

 

 

 

The performance awards issued in 2014 have both market and performance vesting conditions. The payout of fifty percent of the awards is based upon the Company’s total shareholder return compared to the total shareholder return of a relative peer group over a three-year period. These awards were valued using a Monte Carlo model. The payout of the remaining fifty percent of the awards is based upon the Company’s diluted earnings per share growth over a three-year period. These awards have been accounted for as awards with performance conditions using the market value of the Company’s Common Stock on the date of issuance. Expense on these awards is recognized over the performance period and is determined based on the probability that the performance targets will be achieved. The weighted-average grant-date fair value of these shares awarded during the six months ended June 30, 2014 was $34.96.

Note 8—INCOME TAXES:

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items.

For the six months ended June 30, 2014, the estimated annual effective tax rate applied to ordinary income from continuing operations was 24.1%, compared to a rate of 36.6% for the six months ended June 30, 2013. The Company’s effective income tax rate decreased 12.5 percentage points from 2013 principally because no tax expense was recorded on income expected to be earned in 2014 by the Company’s Canadian subsidiary, and no tax benefit was recognized in prior years when Canadian net operating losses generated by this subsidiary were generated.

Due to the Canadian subsidiary’s cumulative losses over a number of years, the Company recorded a full valuation allowance at December 31, 2010 and for all subsequent periods, against its Canadian net deferred tax asset position which is principally comprised of net operating losses. At June 30, 2014, the Company’s projected Canadian net deferred tax asset totaled $31.5 million, with an offsetting valuation allowance of the same amount.

For the six months ended June 30, 2014 and for the full year, the Company’s Canadian subsidiary is expected to generate taxable income, which will not attract a tax charge for financial statement purposes, since no benefit was recognized in prior years for the net operating losses that are offsetting the current year taxable income. The effect of utilizing these Canadian net operating losses for which a benefit is not currently recognized reduced the Company’s estimated annual effective income tax rate by 2.7 percentage points.

 

15


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Inclusive of discrete items, the Company recorded a provision for income taxes of $768, or 18.9% of pretax income from continuing operations, and $3,952 (as restated), or 39.6% of pretax income from continuing operations, for federal, state, and foreign income taxes for the six months ended June 30, 2014 and 2013, respectively. Discrete items for the six months ended June 30, 2014 were not material; while a $1,225 discrete benefit was reflected for the six months ended June 30, 2013 primarily related to adjustments to prior years’ taxes resulting from the settlement of an audit during that period.

Note 9—EARNINGS PER SHARE:

Basic earnings per share (“EPS”) was computed by dividing net income attributable to common shareholders by the weighted-average number of shares of Common Stock outstanding for each respective period. Diluted EPS was calculated by dividing net income attributable to common shareholders by the weighted-average of all potentially dilutive shares of Common Stock that were outstanding during the periods presented. The Company’s restricted stock awards are considered participating securities. As such, the Company uses the two-class method to compute basic and diluted earnings per share.

At June 30, 2014, the Company had $114.4 million aggregate principal amount of its 3.000% Convertible Senior Notes due December 2015 (the “2015 Notes”) and $402.5 million aggregate principal amount of its 1.625% Convertible Senior Notes due October 2019 (the “2019 Notes”) outstanding. At both June 30, 2014 and 2013, the shares underlying the 2015 Notes and 2019 Notes and certain stock options were excluded from the calculation of diluted EPS as their effects were antidilutive.

Shares excluded from the calculation of EPS for the three and six months ending June 30, 2014 and 2013 were as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013  

2015 Notes

     3,185,213         3,185,213         3,185,213         3,185,213   

2019 Notes

     9,885,561         9,885,561         9,885,561         9,885,561   

Antidilutive options (1)

     373,583         326,043         371,192         317,013   

 

(1) Average option price of shares excluded from calculation of earnings per share were $40.38 and $43.01 for the three months ended June 30, 2014 and 2013, respectively and $40.75 and $43.59 for the six months ended June 30, 2014 and 2013, respectively.

 

16


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The following illustrates the earnings allocation method utilized in the calculation of basic and diluted earnings per share. Actual weighted-average shares of Common Stock outstanding used in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2014 and 2013 were as follows:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2014     2013
(As Restated)
    2014     2013
(As Restated)
 

Numerator:

       

Net income from continuing operations before allocation of earnings to participating securities

  $ 7,111      $ 1,059      $ 3,295      $ 6,027   

Less: Earnings allocated to participating securities

    (44     (5     (18     (39
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations attributable to common shareholders, after earnings allocated to participating securities

  $ 7,067      $ 1,054      $ 3,277      $ 5,988   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from discontinued operations before allocation of earnings to participating securities

  $ (70   $ (389   $ (435   $ (472

Less: Earnings allocated to participating securities

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from discontinued operations attributable to common shareholders, after earnings allocated to participating securities

  $ (70   $ (389   $ (435   $ (472
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

       

Basic weighted-average shares outstanding

    30,499,809        30,306,545        30,472,209        30,266,584   

Effect of dilutive securities

    75,903        126,329        107,463        212,892   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted-average shares outstanding

    30,575,712        30,432,874        30,579,672        30,479,476   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

       

Basic

  $ 0.23      $ 0.03      $ 0.11      $ 0.20   

Diluted

  $ 0.23      $ 0.03      $ 0.11      $ 0.20   

Earnings (loss) per share attributable to discontinued operations:

       

Basic

  $ —        $ (0.01   $ (0.01   $ (0.02

Diluted

  $ —        $ (0.01   $ (0.01   $ (0.02

Note 10—CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

Cash and cash equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents principally consist of investments in short-term money market funds and corporate commercial paper with original maturities of less than 90 days.

Available-for-sale securities

Investments with maturities of less than one year are classified as available-for-sale, short-term investments and are recorded at fair value based on market quotes using the specific identification method, with unrealized

 

17


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

gains and losses recorded as a component of accumulated other comprehensive loss until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. The Company considers these investments to be available-for-sale as they may be sold to fund other investment opportunities as they arise.

The major categories of the Company’s cash equivalents and available-for-sale, short-term investments are as follows:

Commercial paper

The Company invests in high-quality commercial paper issued by highly-rated corporations and governments. By definition, the stated maturity on commercial paper obligations cannot exceed 270 days.

Money market mutual funds

The Company invests in money market mutual funds that seek to maintain a stable net asset value of $1.00, while limiting overall exposure to credit, market, and liquidity risks.

Cash, cash equivalents, and short-term investments consist of the following:

 

    June 30,
2014
    December 31,
2013
 

Cash and cash equivalents:

   

Cash

  $ 68,120      $ 62,394   

Cash equivalents:

   

Commercial paper

    24,798        150,978   

Money market mutual funds

    56,035        130,265   
 

 

 

   

 

 

 

Total cash and cash equivalents

    148,953        343,637   
 

 

 

   

 

 

 

Short-term investments:

   

Commercial paper

    143,602        —     
 

 

 

   

 

 

 

Total short-term investments

    143,602        —     
 

 

 

   

 

 

 

Total cash, cash equivalents, and short-term investments

  $ 292,555      $ 343,637   
 

 

 

   

 

 

 

The Company had no short-or long-term investments at December 31, 2013. The Company’s short-term investments at June 30, 2014 were as follows:

 

     Amortized
Cost
     Gross Unrealized         
          Gains          Losses        Fair Value  

As of June 30, 2014

           

Commercial Paper

   $ 143,614       $ —         $ 12       $ 143,602   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 143,614       $ —         $ 12       $ 143,602   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The Company typically purchases its available-for-sale debt securities either at a premium or a discount. The premium or discount is amortized over the remaining term of each security using the interest method. Amortization is recorded as either a decrease to interest income for premiums or an increase to interest income for discounts. For the six months ended June 30, 2014, net amortization of premiums and discounts was immaterial.

The Company classifies investments maturing within one year as short-term investments. Investments maturing in excess of one year are classified as noncurrent. All of the Company’s investments had contractual maturities of less than one year at June 30, 2014.

As of June 30, 2014, no investments classified as available-for-sale have been in a continuous unrealized loss position for greater than twelve months. The Company believes that the unrealized losses on the available-for-sale portfolio as of June 30, 2014 are temporary in nature and are related to market interest rate fluctuations and not indicative of a deterioration in the creditworthiness of the issuers.

Note 11—FAIR VALUE MEASUREMENTS:

For certain of the Company’s financial instruments and account groupings, including cash, accounts receivable, costs in excess of billings, accounts payable, accrued wages and other employee costs, unearned revenue, and other accrued liabilities, the carrying value approximates fair value.

Listed below are the Company’s assets and liabilities and their fair values, which are measured at fair value on a recurring basis, as of June 30, 2014. The Company uses trading prices near the balance sheet date to determine the fair value of its assets measured on a recurring basis. The fair value of contingent consideration payable that was classified as Level 3 relates to our probability assessments of expected future revenues related to the Dynamet Technology acquisition. The contingent consideration is to be paid over the next 10 years, and there is no limit to the potential amount of contingent consideration. The Company is still in the process of finalizing the purchase price allocation related to the Dynamet Technology acquisition. The Company held no assets or liabilities measured at fair value on a recurring basis as of December 31, 2013. There were no transfers between levels for the six months ended June 30, 2014.

 

     Quoted
Market Prices
(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Fair Value  

Assets measured on a recurring basis as of June 30, 2014:

           

Commercial Paper

   $ —         $ 143,602       $ —         $ 143,602   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 143,602       $ —         $ 143,602   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities measured on a recurring basis as of June 30, 2014:

           

Contingent Consideration

   $ —         $ —         $ 1,600       $ 1,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 1,600       $ 1,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The carrying amounts and fair values of financial instruments for which the fair value option was not elected were as follows:

 

     June 30, 2014      December 31, 2013  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Cash and cash equivalents

   $ 148,953       $ 148,953       $ 343,637       $ 343,637   

Current portion of long-term debt

   $ 2,489       $ 2,489       $ 1,914       $ 1,914   

Long-term debt

   $ 442,406       $ 520,541       $ 430,300       $ 559,986   

The fair value of long-term debt was estimated based on significant observable inputs, including recent trades and trading levels of the outstanding debt on June 30, 2014 and December 31, 2013 (Level 2).

Note 12—INVENTORIES:

Inventories were valued at cost as determined by the last-in, first-out (“LIFO”) method for approximately 49% and 56% of the Company’s inventories at June 30, 2014 and December 31, 2013, respectively. The remaining inventories are valued at cost determined by a combination of the first-in, first-out (“FIFO”) and weighted-average cost methods. Inventory costs generally include materials, labor, and manufacturing overhead (including depreciation). As of June 30, 2014 and December 31, 2013, the current FIFO cost of inventories exceeded their LIFO carrying value by $45,374 and $50,709, respectively. When market conditions indicate an excess of carrying cost over market value, a lower-of-cost-or-market provision is recorded. Inventories consisted of the following:

 

     June 30,
2014
    December 31,
2013
 

Raw materials and supplies

   $ 150,522      $ 166,359   

Work-in-process and finished goods

     345,303        314,438   

LIFO reserve

     (45,374     (50,709
  

 

 

   

 

 

 

Total inventories

   $ 450,451      $ 430,088   
  

 

 

   

 

 

 

Note 13—GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill. The Company does not amortize goodwill; however, the carrying amount of goodwill is tested at least annually for impairment. Absent any events throughout the year which would indicate a potential impairment has occurred, the Company performs its annual impairment testing during the fourth quarter.

While there were no impairments during the first six months of 2014, uncertainties or other factors that could result in a potential impairment in future periods include:

 

    the Company’s ability to improve the operational performance of its Medical Device Fabrication reporting unit,

 

    unfavorable changes in program pricing, reductions in expected demand, or future production delays related to the Boeing 787 program, and

 

    any cancellation of one of the other major aerospace programs in which the Company currently participates, including the Joint Strike Fighter program, the Airbus family of aircraft, including the A380 and A350XWB programs, or the Boeing 747-8 program.

 

20


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

At both June 30, 2014 and December 31, 2013, the EP&S Segment had accumulated goodwill impairment losses of $22,858, while the Titanium Segment had no accumulated goodwill impairment losses. The carrying amounts of goodwill attributable to each segment at December 31, 2013 and June 30, 2014 were as follows:

 

     Titanium
Segment
     Engineered
Products and
Services
Segment
    Total  

December 31, 2013

   $ 9,662       $ 107,916      $ 117,578   

Additions (Note 4)

     13,954         12,982        26,936   

Purchase price allocation adjustment

     —           100        100   

Translation adjustment

     —           (42     (42
  

 

 

    

 

 

   

 

 

 

June 30, 2014

   $ 23,616       $ 120,956      $ 144,572   
  

 

 

    

 

 

   

 

 

 

Intangibles. Intangible assets consist primarily of customer relationships, trade names, and developed technology acquired through various business combinations. The fair values of these intangible assets were originally determined at acquisition. In the event that long-term demand or market conditions change and the expected future cash flows associated with these assets are reduced, a write-down or acceleration of the amortization period may be required. Trade names are not amortized, as the Company believes that these assets have an indefinite life as the Company currently intends to continue use of the Remmele and Directed Manufacturing names indefinitely. Other intangible assets are being amortized over the following periods:

 

Intangible Asset

   Amortization
Period
 

Customer relationships

     7-20 years   

Developed technology

     7-20 years   

Backlog

     2 years or less   

There were no intangible assets attributable to the Titanium Segment at December 31, 2013. The acquisition of Dynamet Technology in June 2014 is incorporated into the Titanium Segment. The carrying amounts of intangible assets attributable to each segment at December 31, 2013 and June 30, 2014 were as follows:

 

     Titanium
Segment
    Engineered
Products and
Services
Segment
    Total  

December 31, 2013

   $ —        $ 53,754      $ 53,754   

Intangible assets acquired (Note 4)

     4,600        5,300        9,900   

Amortization

     (54     (2,202     (2,256

Translation adjustment

     —          (134     (134
  

 

 

   

 

 

   

 

 

 

June 30, 2014

   $ 4,546      $ 56,718      $ 61,264   
  

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 14—LONG-TERM DEBT:

Long-term debt consisted of:

 

     June 30,
2014
    December 31,
2013
 

$402.5 million aggregate principal amount 1.625% Convertible Senior Notes due 2019

   $ 325,702      $ 319,569   

$114.4 million aggregate principal amount 3.000% Convertible Senior Notes due 2015

     105,847        103,065   

Capital leases

     13,346        9,580   
  

 

 

   

 

 

 

Total debt

     444,895        432,214   

Less: Current portion of capital leases

     (2,489     (1,914
  

 

 

   

 

 

 

Total long-term debt

   $ 442,406      $ 430,300   
  

 

 

   

 

 

 

During the three and six months ended June 30, 2014, the Company recorded, as a component of interest expense, long-term debt discount amortization of $4,512 and $8,915, respectively. Interest expense from the amortization of debt issuance costs was $472 and $928 for the three and six months ended June 30, 2014, respectively. No interest was capitalized for the three and six months ended June 30, 2014.

During the three and six months ended June 30, 2013, the Company recorded, as a component of interest expense, long-term debt discount amortization of $3,764 and $6,326, respectively. Interest expense from the amortization of debt issuance costs was $428 and $753 for the three and six months ended June 30, 2013, respectively. The Company did not capitalize any interest during the three or six months ended June 30, 2013.

Note 15EMPLOYEE BENEFIT PLANS:

Components of net periodic pension and other post-retirement benefit costs for the three and six months ended June 30, 2014 and 2013 for those salaried and hourly covered employees were as follows:

 

     Pension Benefits     Other Post-Retirement Benefits  
     Three Months
Ended June 30,
    Six Months
Ended June 30,
    Three Months
Ended June 30,
     Six Months
Ended June 30,
 
     2014     2013     2014     2013     2014      2013      2014      2013  

Service cost

   $ 527      $ 594      $ 1,054      $ 1,285      $ 240       $ 177       $ 479       $ 393   

Interest cost

     1,966        1,715        3,932        3,381        533         481         1,067         958   

Expected return on plan assets

     (2,827     (2,615     (5,652     (5,199     —           —           —           —     

Amortization of prior service cost

     229        248        457        496        172         304         344         607   

Amortization of actuarial loss

     1,358        1,412        2,716        3,202        23         53         47         141   

Special termination benefits

     —          —          —          2,052        —           —           —           162   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 1,253      $ 1,354      $ 2,507      $ 5,217      $ 968       $ 1,015       $ 1,937       $ 2,261   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Additionally, the Company recognized $1,105 and $2,210, net of tax, as a component of accumulated other comprehensive loss related to amortization of actuarial losses and prior service costs, for the three and six months ended June 30, 2014, respectively.

 

22


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The Company recorded an expense of $2,214 in net periodic benefit cost during the six months ended June 30, 2013 related to the remeasurement of its qualified defined benefit pension plans and post-retirement medical plans as a result of a voluntary early retirement program initiated during the period. There were no related charges during the three or six months ended June 30, 2014.

The Company made no contributions to its qualified defined benefit plans during the six months ended June 30, 2014. The Company expects to make contributions of up to $1,100 during the remainder of 2014 in order to maintain its desired funding status.

Note 16—COMMITMENTS AND CONTINGENCIES:

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. In the Company’s opinion, the ultimate liability, if any, resulting from these matters will have no significant effect on its Condensed Consolidated Financial Statements. Given the critical nature of many of the aerospace end uses for the Company’s products, including specifically their use in critical rotating parts of gas turbine engines, the Company maintains aircraft products liability insurance of $500 million, which includes grounding liability.

Environmental Matters

Based on available information, the Company believes that its share of possible environmental-related costs is in a range from $0.5 million to $2.1 million in the aggregate. At June 30, 2014 and December 31, 2013, the amount accrued for future environmental-related costs was $1.2 million and $1.3 million, respectively. Of the total amount accrued at June 30, 2014, $0.1 million was expected to be paid within the next twelve months, and was included as a component of other accrued liabilities on the Company’s Condensed Consolidated Balance Sheet. The remaining $1.1 million was recorded as a component of other noncurrent liabilities. During the three months ended June 30, 2014, there were no payments made related to environmental liabilities, and during the six months ended June 30, 2014, the Company made payments of $0.1 million related to its environmental liabilities.

Other Matters

The Company is also the subject of, or a party to, a number of other pending or threatened legal actions involving a variety of matters incidental to its business. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of the operations, cash flows, or the financial position of the Company.

 

23


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 17—SEGMENT REPORTING:

The Company has two reportable segments: the Titanium Segment and the EP&S Segment. The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products. Reportable segments are measured by the Company’s Chief Operating Decision Maker based on revenues and segment operating income after an allocation of certain corporate items such as general corporate overhead and expenses. Assets of general corporate activities include unallocated cash and deferred taxes. A summary of financial information by reportable segment is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013
(As Restated)
    2014     2013
(As Restated)
 

Net sales:

        

Titanium Segment

   $ 83,318      $ 83,521      $ 160,298      $ 180,346   

Intersegment sales

     22,547        25,350        47,593        41,618   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Titanium Segment sales

     105,865        108,871        207,891        221,964   

EP&S Segment

     122,016        115,602        219,581        207,979   

Intersegment sales

     22,115        17,196        50,081        33,039   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total EP&S Segment sales

     144,131        132,798        269,662        241,018   

Eliminations

     44,662        42,546        97,674        74,657   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated net sales

   $ 205,334      $ 199,123      $ 379,879      $ 388,325   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

        

Titanium Segment before corporate allocations

   $ 12,381      $ 21,474      $ 22,810      $ 37,611   

Corporate allocations

     (4,518     (4,510     (9,045     (9,410
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Titanium Segment operating income

     7,863        16,964        13,765        28,201   

EP&S Segment before corporate allocations

     15,715        7,740        17,526        16,729   

Corporate allocations

     (6,106     (4,223     (12,202     (10,802
  

 

 

   

 

 

   

 

 

   

 

 

 

Total EP&S Segment operating income

     9,609        3,517        5,324        5,927   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated operating income

   $ 17,472      $ 20,481      $ 19,089      $ 34,128   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     June 30,
2014
     December 31,
2013
 

Total assets:

     

Titanium Segment

   $ 648,943       $ 604,123   

EP&S Segment

     616,101         585,867   

General corporate assets

     249,659         310,281   

Assets of discontinued operations

     806         5,274   
  

 

 

    

 

 

 

Total consolidated assets

   $ 1,515,509       $ 1,505,545   
  

 

 

    

 

 

 

 

24


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 18—NEW ACCOUNTING STANDARDS:

In June 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-12, “Compensation—Stock Compensation—Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is currently evaluating the impact of the adoption of this ASU on its Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact of the adoption of this ASU on its Consolidated Financial Statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU amends the requirements for reporting discontinued operations to include only disposals of a component or groups of components of an entity if the disposal represents a strategic shift that has or will have a major effect on the entity’s operations and financial results. The amendment requires additional disclosure regarding disposals that meet the criteria for discontinued operations in the ASU, and is effective for all disposals within annual and interim periods beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The Company is currently evaluating the impact of the adoption of this ASU on its Consolidated Financial Statements.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes—Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This ASU prescribes the Balance Sheet presentation for unrecognized tax benefits in the presence of a net operating loss carryforward, tax loss or tax credit carryforward. The amendments in the ASU do not require any new recurring disclosures, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance during the six months ended June 30, 2014 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In March 2013, the FASB issued ASU 2013-05, “Foreign Currency Matters—Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU clarifies the applicable guidance for the release of the cumulative translation adjustment under current U.S. GAAP. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this guidance during six months ended June 30, 2014 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In February 2013, the FASB issued ASU 2013-04, “Liabilities—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.”

 

25


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

This ASU provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the ASU is fixed at the reporting date. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this guidance during the six months ended June 30, 2014 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Note 19GUARANTOR SUBSIDIARIES:

The 2015 Notes and 2019 Notes (together, the “Notes”) are jointly and severally, fully and unconditionally (subject to the customary exceptions discussed below) guaranteed by several 100% owned subsidiaries (the “Guarantor Subsidiaries”) of RTI International Metals, Inc. (the “Parent”). Each Guarantor Subsidiary would be automatically released from its guarantee of the Notes if either (i) it ceased to be a guarantor under the Parent’s Credit Agreement or (ii) it ceased to be a direct or indirect subsidiary of the Parent. Separate financial statements of the Parent and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional (subject to the aforementioned customary exceptions) and the Guarantor Subsidiaries are jointly and severally liable. The Company believes separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors in the Notes.

There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above, except, however, the obligations of each Subsidiary Guarantor under its guarantee will be limited to the maximum amount as will result in obligations of such Subsidiary Guarantor under its guarantee not constituting a fraudulent conveyance or fraudulent transfer for purposes of bankruptcy law, the Uniform Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law.

The Condensed Consolidating Statements of Operations for the three and six months ended June 30, 2013 have been revised and restated for the correction of an error in the calculation of revenues and cost of sales related to contracts requiring the application of the percentage-of-completion revenue recognition methodology under ASC 605-35 and to correct the provision for income taxes related to the establishment of a full valuation allowance against the Company’s Canadian net deferred tax asset. The following table presents the Condensed Consolidating Statements of Operations as filed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as filed with the SEC on September 24, 2013 and the restated balances as filed in the Annual Report. The revision and restatement impacts mainly revenues, cost of sales, the provision for income taxes, and all related subtotals for the non-guarantor subsidiaries. The non-guarantor subsidiary results have also been recast for the presentation of RTI Connecticut as a discontinued operation. Refer to Note 3 for details of restatement adjustments. The revision and restatement adjustments had no impact on the Condensed Consolidating Statement of Cash Flows for the six months ended June 30, 2013.

 

26


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Three Months June 30, 2013

(unaudited)

 

    RTI International
Metals, Inc.
    Guarantors     Non-Guarantors     Eliminations     Consolidated  
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
 

Net sales

  $ —        $ —        $ 136,778      $ 136,778      $ 121,444      $ 119,617      $ (57,272   $ (57,272   $ 200,950      $ 199,123   

Cost of sales

    —          —          108,580        108,580        105,474        104,038        (57,272   $ (57,272     156,782        155,346   

Selling, general, and administrative expenses

    491        491        11,034        11,034        11,116        10,789        —          —          22,641        22,314   

Research, technical, and product development expenses

    —          —          982        982        —          —          —          —          982        982   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (491     (491     16,182        16,182        4,854        4,790        —          —          20,545        20,481   

Other income (expense), net

    (4,167     (4,167     1,104        1,104        3,763        3,763        —          —          700        700   

Interest income (expense), net

    (5,605     (5,605     (8,668     (8,668     (6,370     (6,370     —          —          (20,643     (20,643

Equity in earnings of subsidiaries

    8,220        7,364        263        263        847        847        (9,330     (8,474     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (2,043     (2,899     8,881        8,881        3,094        3,030        (9,330     (8,474     602        538   

Provision for (benefit from) income taxes

    (3,523     (3,958     2,101        2,101        544        1,336        —          —          (878     (521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

    1,480        1,059        6,780        6,780        2,550        1,694        (9,330     (8,474     1,480        1,059   

Net loss attributable to discontinued operations, net of tax

    (307     (389     —          —          (307     (389     307        389        (307     (389
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 1,173      $ 670      $ 6,780      $ 6,780      $ 2,243      $ 1,305      $ (9,023   $ (8,085   $ 1,173      $ 670   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (2,067   $ (1,386   $ 7,862      $ 7,862      $ (2,224   $ (1,978   $ (5,638   $ (5,884   $ (2,067   $ (1,386
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidating Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as filed with the SEC on September 24, 2013.

 

27


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Six Months Ended June 30, 2013

(unaudited)

 

    RTI International
Metals, Inc.
    Guarantors     Non-Guarantors     Eliminations     Consolidated  
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
 

Net sales

  $ —        $ —        $ 272,951      $ 272,951      $ 227,606      $ 223,081      $ (107,707   $ (107,707   $ 392,850      $ 388,325   

Cost of sales

    —          —          222,050        222,050        194,425        190,952        (107,707     (107,707     308,768        305,295   

Selling, general, and administrative expenses

    1,704        1,704        22,742        22,742        23,103        22,473        —          —          47,549        46,919   

Research, technical, and product development expenses

    —          —          1,983        1,983        —          —          —          —          1,983        1,983   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (1,704     (1,704     26,176        26,176        10,078        9,656        —          —          34,550        34,128   

Other income (expense), net

    110        110        (1,280     (1,280     2,429        2,429        —          —          1,259        1,259   

Interest income (expense), net

    (10,022     (10,022     (8,639     (8,639     (6,747     (6,747     —          —          (25,408     (25,408

Equity in earnings of subsidiaries

    15,395        13,010        (110     (110     953        953        (16,238     (13,853     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    3,779        1,394        16,147        16,147        6,713        6,291        (16,238     (13,853     10,401        9,979   

Provision for (benefit from) income taxes

    (4,518     (4,633     4,876        4,876        1,746        3,709        —          —          2,104        3,952   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

    8,297        6,027        11,271        11,271        4,967        2,582        (16,238     (13,853     8,297        6,027   

Net loss attributable to discontinued operations, net of tax

    (156     (472     —          —          (156     (472     156        472        (156     (472
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 8,141      $ 5,555      $ 11,271      $ 11,271      $ 4,811      $ 2,110      $ (16,082   $ (13,381   $ 8,141      $ 5,555   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 8,913      $ 8,114      $ 18,528      $ 18,528      $ (2,470   $ (3,384   $ (16,058   $ (15,144   $ 8,913      $ 8,114   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidating Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as filed with the SEC on September 24, 2013.

 

28


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The following tables present Condensed Consolidating Financial Statements as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013:

Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended June 30, 2014

 

    RTI International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

  $ —        $ 119,503      $ 135,446      $ (49,615   $ 205,334   

Costs and expenses:

         

Cost of sales

    —          104,233        108,404        (49,615     163,022   

Selling, general, and administrative expenses (1)

    (379     11,149        12,861        —          23,631   

Research, technical, and product development expenses

    —          1,196        13        —          1,209   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    379        2,925        14,168        —          17,472   

Other income (expense), net

    1,217        (979     (613     —          (375

Interest income (expense), net

    (5,942     (1,043     (644     —          (7,629

Equity in earnings of subsidiaries

    10,077        218        327        (10,622     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    5,731        1,121        13,238        (10,622     9,468   

Provision for (benefit from) income taxes

    (1,380     514        3,223        —          2,357   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to continuing operations

  $ 7,111      $ 607      $ 10,015      $ (10,622   $ 7,111   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to discontinued operations, net of tax

  $ (70   $ —        $ (70   $ 70      $ (70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 7,041      $ 607      $ 9,945      $ (10,552   $ 7,041   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ 12,166      $ 1,554      $ 13,947      $ (15,501   $ 12,166   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates selling, general, and administrative expenses (“SG&A”) to the subsidiaries based upon its budgeted annual expenses. A credit in parent SG&A is offset by an equal debit amount in the subsidiaries’ SG&A.

 

29


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended June 30, 2013

 

    RTI International
Metals, Inc.
(As Restated)
    Guarantor
Subsidiaries
(As Restated)
    Non-Guarantor
Subsidiaries
(As Restated)
    Eliminations
(As Restated)
    Consolidated
(As Restated)
 

Net sales

  $ —        $ 136,778      $ 119,617      $ (57,272   $ 199,123   

Costs and expenses:

         

Cost of sales

    —          108,580        104,038        (57,272     155,346   

Selling, general, and administrative expenses (1)

    491        11,034        10,789        —          22,314   

Research, technical, and product development expenses

    —          982        —          —          982   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    (491     16,182        4,790        —          20,481   

Other income (expense)

    (4,167     1,104        3,763        —          700   

Interest income (expense), net

    (5,605     (8,668     (6,370     —          (20,643

Equity in earnings of subsidiaries

    7,364        263        847        (8,474     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    (2,899     8,881        3,030        (8,474     538   

Provision for (benefit from) income taxes

    (3,958     2,101        1,336        —          (521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

  $ 1,059      $ 6,780      $ 1,694      $ (8,474   $ 1,059   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to discontinued operations, net of tax

  $ (389   $ —        $ (389   $ 389      $ (389
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 670      $ 6,780      $ 1,305      $ (8,085   $ 670   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (1,386   $ 7,862      $ (1,978   $ (5,884   $ (1,386
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses.

 

30


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Six Months Ended June 30, 2014

 

    RTI International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

  $ —        $ 233,626      $ 249,735      $ (103,482   $ 379,879   

Costs and expenses:

         

Cost of sales

    —          206,353        206,227        (103,482     309,098   

Selling, general, and administrative expenses (1)

    568        23,307        25,624        —          49,499   

Research, technical, and product development expenses

    —          2,180        13        —          2,193   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    (568     1,786        17,871        —          19,089   

Other income (expense), net

    2,707        (1,817     (730     —          160   

Interest income (expense), net

    (11,757     (2,245     (1,184     —          (15,186

Equity in earnings of subsidiaries

    11,535        566        1,302        (13,403     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    1,917        (1,710     17,259        (13,403     4,063   

Provision for (benefit from) income taxes

    (1,378     (1,016     3,162        —          768   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to continuing operations

  $ 3,295      $ (694   $ 14,097      $ (13,403   $ 3,295   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to discontinued operations, net of tax

  $ (435   $ —        $ (435   $ 435      $ (435
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 2,860      $ (694   $ 13,662      $ (12,968   $ 2,860   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ 4,971      $ 1,208      $ 13,571      $ (14,779   $ 4,971   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses.

 

31


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Six Months Ended June 30, 2013

 

     RTI
International
Metals, Inc.
(As Restated)
    Guarantor
Subsidiaries
(As Restated)
    Non-Guarantor
Subsidiaries
(As Restated)
    Eliminations
(As Restated)
    Consolidated
(As Restated)
 

Net sales

   $ —        $ 272,951      $ 223,081      $ (107,707   $ 388,325   

Costs and expenses:

          

Cost of sales

     —          222,050        190,952        (107,707     305,295   

Selling, general, and administrative expenses (1)

     1,704        22,742        22,473        —          46,919   

Research, technical, and product development expenses

     —          1,983        —          —          1,983   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     (1,704     26,176        9,656        —          34,128   

Other income (expense)

     110        (1,280     2,429        —          1,259   

Interest income (expense), net

     (10,022     (8,639     (6,747     —          (25,408

Equity in earnings of subsidiaries

     13,010        (110     953        (13,853     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,394        16,147        6,291        (13,853     9,979   

Provision for (benefit from) income taxes

     (4,633     4,876        3,709        —          3,952   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

   $ 6,027      $ 11,271      $ 2,582      $ (13,853   $ 6,027   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to discontinued operations, net of tax

   $ (472   $ —        $ (472   $ 472      $ (472
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,555      $ 11,271      $ 2,110      $ (13,381   $ 5,555   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 8,114      $ 18,528      $ (3,384   $ (15,144   $ 8,114   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses.

 

32


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Balance Sheet

As of June 30, 2014

 

    RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ —        $ 109,935      $ 39,018      $ —        $ 148,953   

Short-term investments

    —          143,602        —          —          143,602   

Receivables, net

    1,109        53,906        76,284        (21,971     109,328   

Inventories, net

    —          286,086        164,365        —          450,451   

Cost in excess of billings

    —          4,070        3,261        —          7,331   

Deferred income taxes

    27,193        2,755        2,263        —          32,211   

Assets of discontinued operations

    —          —          806        —          806   

Other current assets

    11,405        2,679        6,545        —          20,629   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    39,707        603,033        292,542        (21,971     913,311   

Property, plant, and equipment, net

    2,263        285,086        86,627        —          373,976   

Goodwill

    —          94,511        50,061        —          144,572   

Other intangible assets, net

    —          34,653        26,611        —          61,264   

Other noncurrent assets

    9,487        7,184        5,715        —          22,386   

Intercompany investments

    1,258,663        27,189        7,023        (1,292,875     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,310,120      $ 1,051,656      $ 468,579      $ (1,314,846   $ 1,515,509   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

         

Current liabilities:

         

Accounts payable

  $ 2,223      $ 54,452      $ 45,719      $ (21,971   $ 80,423   

Accrued wages and other employee costs

    5,607        12,994        8,672        —          27,273   

Unearned revenue

    —          10        10,934        —          10,944   

Other accrued liabilities

    5,420        3,931        12,072        —          21,423   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    13,250        71,387        77,397        (21,971     140,063   

Long-term debt

    431,548        361        10,497        —          442,406   

Intercompany debt

    —          312,914        151,804        (464,718     —     

Liability for post-retirement benefits

    —          43,931        —          —          43,931   

Liability for pension benefits

    6,136        6,826        159        —          13,121   

Deferred income taxes

    70,486        1,747        4,071        —          76,304   

Unearned revenue

    —          —          5,435        —          5,435   

Other noncurrent liabilities

    7,417        5,247        302        —          12,966   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    528,837        442,413        249,665        (486,689     734,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ equity

    781,283        609,243        218,914        (828,157     781,283   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 1,310,120      $ 1,051,656      $ 468,579      $ (1,314,846   $ 1,515,509   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Balance Sheet

As of December 31, 2013

 

    RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ —        $ 312,202      $ 31,435      $ —        $ 343,637   

Receivables, net

    786        57,397        69,847        (22,759     105,271   

Inventories, net

    —          265,621        164,467        —          430,088   

Costs in excess of billings

    —          3,800        1,577        —          5,377   

Deferred income taxes

    31,656        —          376        —          32,032   

Assets of discontinued operations

    —          —          5,274        —          5,274   

Other current assets

    9,425        2,984        4,538        —          16,947   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    41,867        642,004        277,514        (22,759     938,626   

Property, plant, and equipment, net

    2,328        292,033        77,979        —          372,340   

Goodwill

    —          79,705        37,873        —          117,578   

Other intangible assets, net

    —          31,184        22,570        —          53,754   

Other noncurrent assets

    11,025        7,184        5,038        —          23,247   

Intercompany investments

    1,240,671        26,623        5,721        (1,273,015     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,295,891      $ 1,078,733      $ 426,695      $ (1,295,774   $ 1,505,545   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

       

Current liabilities:

         

Accounts payable

  $ 1,948      $ 54,111      $ 45,739      $ (22,759   $ 79,039   

Accrued wages and other employee costs

    6,598        14,093        9,096        —          29,787   

Unearned revenue

    —          288        15,337        —          15,625   

Liabilities of discontinued operations

    —          —          458        —          458   

Other accrued liabilities

    6,800        5,101        10,673        —          22,574   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    15,346        73,593        81,303        (22,759     147,483   

Long-term debt

    422,634        738        6,928        —          430,300   

Intercompany debt

    —          357,144        106,633        (463,777     —     

Liability for post-retirement benefits

    —          43,447        —          —          43,447   

Liability for pension benefits

    5,943        7,685        159        —          13,787   

Deferred income taxes

    70,006        —          4,072        —          74,078   

Unearned revenue

    —          —          10,470        —          10,470   

Other noncurrent liabilities

    7,988        3,763        255        —          12,006   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    521,917        486,370        209,820        (486,536     731,571   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ equity

    773,974        592,363        216,875        (809,238     773,974   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 1,295,891      $ 1,078,733      $ 426,695      $ (1,295,774   $ 1,505,545   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2014

 

    RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash provided by (used in) operating activities

  $ 1,007      $ (2,087   $ (257   $ —        $ (1,337
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

         

Acquisitions, net of cash acquired

    —          (15,508     (21,709     —          (37,217

Capital expenditures

    (186     (7,989     (5,431     —          (13,606

Short-term investments, net

    —          (143,555     —          —          (143,555

Divestitures

    —          —          3,281        —          3,281   

Intercompany debt activity, net

    (928     —          33,757        (32,829     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

    (1,114     (167,052     9,898        (32,829     (191,097
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

         

Proceeds from exercise of employee stock options

    709        —          —          —          709   

Excess tax benefits from stock-based compensation activity

    197        —          —          —          197   

Repayments on long-term debt

    —          (475     (936     —          (1,411

Intercompany debt activity, net

    —          (32,829     —          32,829        —     

Purchase of common stock held in treasury

    (851     —          —          —          (851

Other financing activities

    52        176        (228     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

    107        (33,128     (1,164     32,829        (1,356
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

    —          —          (894     —          (894
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase/(decrease) in cash and cash equivalents

    —          (202,267     7,583        —          (194,684

Cash and cash equivalents at beginning of period

    —          312,202        31,435        —          343,637   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —        $ 109,935      $ 39,018      $ —        $ 148,953   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2013

 

    RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash provided by (used in) operating activities

  $ (2,158   $ (4,319   $ 7,096      $ —        $ 619   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

         

Acquisitions, net of cash acquired

    —          —          10,475        —          10,475   

Investments in subsidiaries, net

    (2,300     —          —          2,300        —     

Capital expenditures

    (558     (13,917     (5,190     —          (19,665

Investments, net

    —          (128,291     —          —          (128,291

Intercompany debt activity, net (1)

    (266,663     —          (18,249     284,912        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

    (269,521     (142,208     (12,964     287,212        (137,481
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

         

Proceeds from exercise of employee stock options

    1,489        —          —          —          1,489   

Excess tax benefits from stock-based compensation activity

    376        —          —          —          376   

Financing fees

    (12,370           (12,370

Parent company investments/dividends, net

    —          579        1,721        (2,300     —     

Borrowings on long-term debt

    402,500        —          —          —          402,500   

Repayments on long-term debt

    (119,917     (445     —          —          (120,362

Intercompany debt activity, net (1)

    —          284,912        —          (284,912     —     

Purchase of common stock held in treasury

    (399     —          —          —          (399
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

    271,679        285,046        1,721        (287,212     271,234   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

    —          —          (129     —          (129
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

    —          138,519        (4,276     —          134,243   

Cash and cash equivalents at beginning of period

    —          87,283        9,907        —          97,190   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —        $ 225,802      $ 5,631      $ —        $ 231,433   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): The Condensed Consolidated Statements of Cash Flows have been adjusted to reclassify intercompany debt activities between investing and financing activities, rather than entirely as financing activities as previously reported. These adjustments increased (decreased) cash flows from investing activities for the RTI International Metals, Inc. Parent Company, Non-Guarantor Subsidiaries, and Eliminations by $(266,663), $(18,249), and $284,912 and increased (decreased) cash flows from financing activities for the RTI International Metals, Inc. Parent Company, Non-Guarantor Subsidiaries, and Eliminations by $266,663, $18,249, and $(284,912), respectively.

 

36


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following discussion should be read in connection with the information contained in the Condensed Consolidated Financial Statements and the Notes to the Condensed Consolidated Financial Statements. The following information contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that Act. Such forward-looking statements may be identified by their use of words like “expects,” “anticipates,” “believes,” “intends,” “estimates,” “projects,” or other words of similar meaning. Forward-looking statements are based on expectations and assumptions regarding future events. In addition to factors discussed throughout this quarterly report, the following factors and risks should also be considered, including, without limitation:

 

    global economic and political uncertainties,

 

    a significant portion of our revenue is concentrated within the commercial aerospace and defense industries and the limited number of potential customers within those industries,

 

    changes in defense spending and cancellation or changes in defense programs or initiatives, including the Joint Strike Fighter program,

 

    long-term supply agreements and the impact if another party to a long-term supply agreement fails to fulfill its requirements under existing contracts or successfully manage its future development and production schedule,

 

    our ability to successfully integrate newly acquired businesses,

 

    if our internal controls are not effective, investors could lose confidence in our financial reporting,

 

    our ability to recover the carrying value of goodwill and other intangible assets,

 

    our dependence on products and services that are subject to price and availability fluctuations,

 

    our ability to protect our data and systems against corruption and cyber-security threats and attacks,

 

    fluctuations in our income tax obligations and effective income tax rate,

 

    our ability to execute on new business awards,

 

    demand for our products,

 

    competition in the titanium industry,

 

    the future availability and prices of raw materials,

 

    the historic cyclicality of the titanium and commercial aerospace industries,

 

    energy shortages or cost increases,

 

    labor matters,

 

    risks related to international operations,

 

    our ability to attract and retain key personnel,

 

    the ability to obtain access to financial markets and to maintain current covenant requirements,

 

    potential costs for violations of applicable environmental, health, and safety laws,

 

    the fluctuation of the price of our Common Stock, and

 

    our ability to generate sufficient cash flow to satisfy our debt obligations.

Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These and other risk factors are set forth in this filing, as well as in other filings filed with or furnished to the Securities and Exchange Commission (“SEC”) over the last 12 months, copies of which are

 

37


Table of Contents

available from the SEC or may be obtained upon request from RTI International Metals, Inc. (the “Company,” “RTI,” “we,” “us,” or “our”). Any forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and we caution you not to unduly rely on them. Except as may be required by applicable law, we undertake no duty to update our forward-looking information.

Overview

Overview

We are a leading producer and global supplier of advanced titanium mill products and supplier of fabricated titanium and specialty metal components for the international aerospace, defense, medical device, energy, and other consumer and industrial markets. We conduct our global operations into two segments: the Titanium Segment and the Engineered Products and Services (“EP&S”) Segment.

The Titanium Segment melts, processes, produces, stocks, distributes, finishes, cuts-to-size and facilitates just-in-time delivery services of a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. With operations in Niles and Canton, Ohio; Martinsville, Virginia; Norwalk, California; Burlington, Massachusetts; Tamworth, England; and Rosny-Sur-Seine, France, the Titanium Segment has overall responsibility for the production and distribution of primary mill products including, but not limited to, bloom, billet, sheet, and plate. In addition, the Titanium Segment produces ferro titanium alloys for its steel-making customers. The Titanium Segment also focuses on the research and development of evolving technologies relating to raw materials, melting, and other production processes, and the application of titanium in new markets.

The EP&S Segment is comprised of companies with significant hard and soft-metal expertise that form, extrude, fabricate, machine, additively manufacture, micro machine, and assemble titanium, aluminum, and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve commercial aerospace, defense, medical device, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. With operations located in Minneapolis, Minnesota; Houston and Austin, Texas; Sullivan and Washington, Missouri; Laval, Canada; and Welwyn Garden City and Bradford, England, the EP&S Segment provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and sub-assemblies, and components for the production of minimally invasive and implantable medical devices, as well as engineered systems for deepwater oil and gas exploration and production infrastructure.

The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products. For the three months ended June 30, 2014 and 2013, approximately 21% and 23%, respectively, of the Titanium Segment’s sales were to the EP&S Segment. For the six months ended June 30, 2014 and 2013, approximately 23% and 19%, respectively, of the Titanium Segment’s sales were to the EP&S Segment.

Trends and Uncertainties

The commercial aerospace industry, which represents our largest market, continues to strengthen as the ramp in production activity stays on track to support the growing, record commercial aerospace backlog. We continue to win additional commercial aerospace business through the spectrum of products and services that we offer within our EP&S Segment. We also continue to increase the use of titanium produced at our mill in these commercial aerospace applications, which we anticipate will drive margin benefits at an enterprise level. In addition to the offerings of our EP&S Segment, we have experienced increased demand for offerings from our Titanium Segment in the commercial aerospace engine market, including a recently negotiated agreement to supply titanium alloys for use in turbine engines. As we expand our offerings to the commercial aerospace market, we have experienced and may continue to experience increased costs related to the development of these offerings, which could have negative impacts on our operations. In addition, political instability in Russia and Ukraine and any potential sanctions related to that instability, as well as the recent conflict in the Middle East, could have a negative impact on the commercial aerospace market.

 

38


Table of Contents

We continue to experience short-term difficulties in the medical device market; however we see long-term profitable growth within the market as short-term pricing pressures related to the Patient Protection and Affordable Care Act are expected to be overcome by long-term growth resulting from aging populations and continued advances in medical technology.

U.S. defense spending continues to be a source of uncertainty, but we continue to see support for key programs such as the JSF and other aircraft, as well as a radar modernization program, which we believe provides stability for our defense market sales.

Results of Operations

Three Months Ended June 30, 2014 Compared To Three Months Ended June 30, 2013

Net Sales. Net sales for our reportable segments, excluding intersegment sales, for the three months ended June 30, 2014 and 2013 were as follows:

 

     Three Months Ended
June 30,
              
(In millions except percentages)    2014      2013
(As Restated)
     $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 83.3       $ 83.5       $ (0.2     (0.2 )% 

EP&S Segment

     122.0         115.6         6.4        5.5
  

 

 

    

 

 

    

 

 

   

 

 

 

Total consolidated net sales

   $ 205.3       $ 199.1       $ 6.2        3.1
  

 

 

    

 

 

    

 

 

   

 

 

 

The decrease in the Titanium Segment’s net sales was the result of a lower priced product mix which resulted in a 21% decrease in average realized selling prices, to $15.42 per pound for the three months ended June 30, 2014, from $19.61 per pound for the three months ended June 30, 2013, partially offset by an increase in shipments of prime mill products to trade customers to 1.8 million pounds for the three months ended June 30, 2014, from 1.5 million pounds for the period ended June 30, 2013. Higher ferro-alloy demand from our specialty steel customers increased the Titanium Segment’s net sales by $1.1 million.

The increase in the EP&S Segment’s net sales was primarily attributable to achieving full-rate production under the Boeing 787 Pi Box program, which increased net sales by $18.0 million, and the acquisitions of RTI Extrusions Europe and RTI Directed Manufacturing, which increased net sales by $6.2 million. These increases were partially offset by lower sales of $3.5 million related to commercial aerospace build-rate schedule reductions, decreased energy-market project revenue of $4.9 million, and lower commercial aerospace and defense and medical device-market demand which reduced net sales by $7.4 million and $2.0 million, respectively.

Gross Profit. Gross profit for our reportable segments for the three months ended June 30, 2014 and 2013 was as follows:

 

     Three Months Ended
June 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 17.5         21.0   $ 26.3         31.5   $ (8.8     (33.5 )% 

EP&S Segment

     24.8         20.3     17.5         15.1     7.3        41.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated gross profit

   $ 42.3         20.6   $ 43.8         22.0   $ (1.5     (3.4 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s gross profit was primarily attributable to a lower-priced product mix and lower duty drawback recoveries. Partially offsetting these decreases were gross margin improvements due to higher sales volumes and higher margins on sales into the specialty alloy market during the quarter.

 

39


Table of Contents

The increase in the EP&S Segment’s gross profit was driven primarily by an increase of $9.2 million due to the recognition of gross profit related to certain energy market projects previously accounted for using the “zero- margin” percentage-of-completion revenue recognition model. During the three months ended June 30, 2014, the Company developed the requisite estimates of total cost and total revenue for these projects to convert from the “zero-margin” percentage of completion method to a traditional percentage of completion method. Additionally, the EP&S Segment benefitted from achieving full-rate production for the Boeing 787 Pi Box program. Further, the acquisitions of RTI Extrusions Europe and RTI Directed Manufacturing increased EP&S segment gross profit by $1.3 million during the three months ended June 30, 2014 as compared to June 30, 2013. These increases were partially offset by lower gross profit from the medical device market due to lower demand, as well as lower sales to other aerospace and defense market programs.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses (“SG&A”) for our reportable segments for the three months ended June 30, 2014 and 2013 were as follows:

 

     Three Months Ended
June 30,
              
     2014     2013
(As Restated)
              
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
     % Increase/
(Decrease)
 

Titanium Segment

   $ 8.5         10.2   $ 8.3         9.9   $ 0.2         2.4

EP&S Segment

     15.1         12.4     14.0         12.1     1.1         7.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total consolidated SG&A

   $ 23.6         11.5   $ 22.3         11.2   $ 1.3         5.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The increase in SG&A expenses during the three months ended June 30, 2014 as compared to June 30, 2013 was due mainly to the acquisitions of RTI Extrusions Europe in October 2013 and RTI Directed Manufacturing in January 2014 and severance costs associated with fixed cost reductions, which increased SG&A by $1.0 million and $0.3 million, respectively.

Research, Technical, and Product Development Expenses. Research, technical, and product development expenses were $1.2 million and $1.0 million for the three months ended June 30, 2014 and 2013, respectively. This spending reflects our continued focus on productivity and quality enhancements to our current manufacturing processes, as well as new product development.

Operating Income. Operating income for our reportable segments for the three months ended June 30, 2014 and 2013 was as follows:

 

     Three Months Ended
June 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 7.9         9.5   $ 17.0         20.4   $ (9.1     (53.5 )% 

EP&S Segment

     9.6         7.9     3.5         3.0     6.1        174.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated operating income

   $ 17.5         8.5   $ 20.5         10.3   $ (3.0     (14.6 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s operating income was primarily the result of lower pricing and a decrease in duty drawback recoveries during the three months ended June 30, 2014, partially offset by increased volumes and higher margins on specialty alloys sales during the quarter.

The EP&S Segment’s operating income increased primarily due to higher volumes related to the Boeing 787 program and recognition of gross profit on certain energy-market projects during the quarter. These increases were partially offset by build rate adjustments for certain commercial aerospace programs and lower medical device volumes.

 

40


Table of Contents

Other Income (Expense), Net. Other income (expense), net, was $(0.4) million and $0.7 million for the three months ended June 30, 2014 and 2013, respectively. Other income (expense) consisted of foreign exchange gains and losses from our international operations and realized gains (losses) on sales of available-for-sale securities.

Interest Income and Interest Expense. Interest income was not material for each of the three months ended June 30, 2014 and 2013. Interest expense for each of the three months ended June 30, 2014 and 2013 was $7.7 million and $20.7 million, respectively. Interest expense for the three months ended June 30, 2013 included debt extinguishment charges of $13.7 million related to the repurchase of approximately $115.6 million of our 3.000% Convertible Senior Notes due 2015.

Our interest expense for the three months ended June 30, 2014 and 2013 was attributable to the following:

 

     Three Months Ended
June 30,
 
     2014      2013  

1.625% Convertible Senior Notes due 2019

   $ 4,738       $ 3,809   

3.000% Convertible Senior Notes due 2015

     2,267         2,176   

Debt extinguishment charges

     —           13,710   

Other

     719         998   
  

 

 

    

 

 

 

Total

   $ 7,724       $ 20,693   
  

 

 

    

 

 

 

Provision for (Benefit from) Income Taxes. We recognized a provision for (benefit from) income taxes of $2.4 million, or 24.9% of pretax income, and $(0.5) million, or (96.8%) of pretax income, for federal, state, and foreign income taxes on continuing operations for the three months ended June 30, 2014 and 2013, respectively. Discrete items for the three months ended June 30, 2014 were not material. Discrete items for the three months ended June 30, 2013 resulted in a benefit of $1.5 million and were primarily due to the effective settlement of an audit, partially offset by adjustments for prior year filed returns This change from a benefit of $(0.5) million to a provision of $2.4 million is illustrated in the table below:

 

Benefit from income taxes for the three months ended June 30, 2013 (As Restated)

     ($ 0.5

Items resulting in changes in income tax provision between periods:

    

Tax at statutory rate of 35% resulting from an increase in income between periods

     3.1     

Tax reserves and prior years’ income taxes

     2.0     

Foreign income taxed at different rates

     (1.9  

Domestic manufacturing deduction

     (0.2  

Other

     (0.1   $ 2.9   
  

 

 

   

 

 

 

Provision for income taxes for the three months ended June 30, 2014

     $ 2.4   
    

 

 

 

Because of the Canadian subsidiary’s cumulative losses over a number of years, no financial statement benefit has been recognized for its deferred tax assets, including its net operating losses. As a result, income expected to be earned by the Company’s Canadian subsidiary in 2014 has an effective tax rate of zero. The effect of utilizing these un-benefited Canadian NOLs in the three month period is reflected in the “foreign income taxed at different rates” above.

Refer to Note 8 of the accompanying Condensed Consolidated Financial Statements for additional information regarding income taxes.

 

41


Table of Contents

Six Months Ended June 30, 2014 Compared To Six Months Ended June 30, 2013

Net Sales. Net sales for our reportable segments, excluding intersegment sales, for the six months ended June 30, 2014 and 2013 were as follows:

 

     Six Months Ended
June 30,
              
(In millions except percentages)    2014      2013
(As Restated)
     $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 160.3       $ 180.3       $ (20.0     (11.1 )% 

EP&S Segment

     219.6         208.0         11.6        5.6
  

 

 

    

 

 

    

 

 

   

 

 

 

Total consolidated net sales

   $ 379.9       $ 388.3       $ (8.4     (2.2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

The decrease in the Titanium Segment’s net sales was the result of a decrease in shipments of prime mill product to trade customers to 3.3 million pounds for the six months ended June 30, 2014 from 3.9 million pounds for the six month period ended June 30, 2013, which was primarily the result of lower demand from our commercial aerospace and defense market customers. Average realized selling prices decreased 13% to $16.05 per pound for the six months ended June 30, 2014, from $18.49 per pound for the six months ended June 30, 2013 primarily as a result of a lower-priced product mix.

The increase in the EP&S Segment’s net sales was primarily attributable to the Boeing 787 Pi Box program, which increased net sales by $34.2 million, and the acquisitions of RTI Extrusions Europe and RTI Directed Manufacturing, which increased sales by $11.7 million. These increases were partially offset by lower sales of $8.9 million related to commercial aerospace build-rate schedule reductions, decreased activity on energy market projects, which reduced net sales by $13.0 million, lower other aerospace and defense program demand, which decreased net sales by $9.4 million, and lower demand from our medical device market customers, which decreased net sales by $3.0 million.

Gross Profit. Gross profit for our reportable segments for the six months ended June 30, 2014 and 2013 was as follows:

 

    Six Months Ended
June 30,
             
    2014     2013
(As Restated)
             
(In millions except percentages)   $     % of
Sales
    $     % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

  $ 33.8        21.1   $ 47.7        26.5   $ (13.9     (29.1 )% 

EP&S Segment

    37.0        16.8     35.3        17.0     1.7        4.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated gross profit

  $ 70.8        18.6   $ 83.0        21.4   $ (12.2     (14.7 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s gross profit was primarily attributable to a lower-priced product mix, which decreased gross profit $9.5 million, and lower shipments to trade customers, which decreased gross profit $0.2 million. Additionally, the duty drawback recoveries decreased $7.0 million during the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, primarily due to the backlog of claims that were filed in 2013. Furthermore, the six months ended June 30, 2013 included a $1.6 million expense related to a voluntary early retirement program.

The increase in the EP&S Segment’s gross profit was driven primarily by an increase of $6.5 million due to the recognition of gross profit related to certain energy market projects previously accounted for using the “zero- margin” percentage-of-completion revenue recognition model. During the six months ended June 30, 2014, the Company developed the requisite estimates of total cost and total revenue for these projects to convert from the “zero-margin” percentage of completion method to a traditional percentage of completion method.

 

42


Table of Contents

Additionally, the Company benefitted from increases related to the ramp-up of the Boeing 787 Pi Box program. These increases were partially offset by adjustments to certain commercial aerospace build rate schedules and lower margins on sales to our medical device market customers.

Selling, General, and Administrative Expenses. SG&A for our reportable segments for the six months ended June 30, 2014 and 2013 were as follows:

 

     Six Months Ended
June 30,
              
     2014     2013
(As Restated)
              
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
     % Increase/
(Decrease)
 

Titanium Segment

   $ 17.9         11.2   $ 17.5         9.7   $ 0.4         2.3

EP&S Segment

     31.6         14.4     29.4         14.1     2.2         7.5